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Bay Bancorp, Inc. Announces Record Third Quarter 2017 Results

COLUMBIA, Md., Oct. 26, 2017 (GLOBE NEWSWIRE) -- Bay Bancorp, Inc. ("Bay") (NASDAQ:BYBK), the savings and loan holding company for Bay Bank, FSB ("Bank"), announced today net income increased to $2.2 million, or $0.21 per basic common share and $0.20 per diluted common share, for the third quarter of 2017 over the $0.5 million, or $0.04 per basic common share and $0.03 per diluted common share, recorded for the third quarter of 2016. Bay reported net income of $4.4 million, or $0.41 per basic common share and diluted common share, for the first nine months of 2017, compared to $1.1 million, or $0.09 per basic common share and diluted common share, for the first nine months of 2016. Net loans increased by $15.2 million, or 3%, when compared to June 30, 2017. The Bank now has total assets exceeding $650 million and 11 branches in the Baltimore-Washington region, and is the fifth largest community bank headquartered in the Baltimore region based upon deposit market share.

Commenting on the earnings announcement, Joseph J. Thomas, President and CEO, said, "I am very proud to announce yet another record quarter with solid balance sheet growth, sustained earnings momentum and improved returns on equity and assets. Core income continued its strong growth and net income growth this quarter was further augmented by the $1.4 million in other income related to the insurance recovery in connection with the Bank's settlement of the lawsuit filed by Alvin and Lois Lapidus. As part of the settlement, the Bank agreed to pay $1.4 million to Alvin and Lois Lapidus. The Bank had set up a liability for this settlement last year and did not incur additional expense in the third quarter of 2017 for the payment. For the three-month period ending September 30, 2017, we grew loans and deposits at 12% and 10% on an annualized basis, respectively. Along with the insurance income, our organic growth in loans, our low cost core deposit funding and improved operational efficiencies drove the company's net income before taxes to $3.7 million, an 85% increase over the $2.0 million recorded for the quarter ended June 30, 2017. We were also able to improve asset quality through resolutions of acquired loans and our nonperforming assets decreased 22% on an annualized basis to $11.4 million at September 30, 2017 from $14.6 million at June 30, 2017. We are excited about the proposed merger, announced on September 27, 2017, with Old Line Bank expected to close during the second quarter of 2018, where Bay's attractive geographic footprint, strong client relationships, talented team of associates, diverse loan portfolio, low-cost core deposits and solid fee based revenues should complement and strengthen Old Line Bank's high performing franchise."

Highlights from the First Nine Months of 2017

The Bank continued organic net growth in the third quarter of 2017. Net loan and deposit growth was favorable. Planned declines in certificate of deposit balances following the successful closing of Bay's merger with Hopkins Bancorp, Inc. and the related merger of Hopkins Federal Savings Bank into the Bank (collectively, the "Hopkins Merger") led to an attractive 0.46% cost of funds for the third quarter of 2017. Bay has strong liquidity and capital positions along with capacity for future growth, with total regulatory capital to risk weighted assets of approximately 13.01% at September 30, 2017. The Bank had $7.2 million in remaining net purchase discounts on acquired loan portfolios at September 30, 2017.

Specific highlights are listed below:

Return on average assets for the three-month period ended September 30, 2017 was 1.37% as compared to 0.79% and 0.33% for the three-month periods ended June 30, 2017 and September 30, 2016, respectively, and return on average equity for the three-month period ended September 30, 2017 was 13.21%, as compared to 7.44% and 3.14% for the three-month periods ended June 30, 2017 and September 30, 2016, respectively.

With consistent organic growth, total assets were $652 million at September 30, 2017 compared to $646 million at June 30, 2017 and $606 million at September 30, 2016.

Total loans were $525 million at September 30, 2017, an increase of 3% from $510 million at June 30, 2017, an increase of 8% from $487 million at December 31, 2016 and an increase of 9% from $482 million at September 30, 2016.

Total deposits were $549 million at September 30, 2017, an increase of 3% from $536 million at June 30, 2017, an increase of 4% from $526 million at December 31, 2016 and an increase of 3% from $531 million at September 30, 2016. Non-interest bearing deposits were $130 million at September 30, 2017, an increase of 8% from $120 million at June 30, 2017, an increase of 16% from $111 million at December 31, 2016, and an increase of 30% from $100 million at September 30, 2016.

Net interest income for the three-month period ended September 30, 2017 totaled $6.6 million, compared to $6.3 million for the second quarter of 2017 and $5.7 million for the three-month period ended September 30, 2016. Interest income associated with discount accretion on purchased loans, deferred costs and deferred fees will vary due to the timing and nature of loan principal payments. Earning asset leverage was the primary driver in year-over-year results, as average earning loans and investments increased to $580 million for the three-month period ended September 30, 2017, compared to $534 million for the same period of 2016.

Net interest margin for the three- and nine-month periods ended September 30, 2017 was 4.66% and 4.19%, which were higher than the 3.86% and 4.11%, respectively, recorded for the same periods of 2016. The margin for the nine-month period ended September 30, 2017 reflects the variable pace of discount accretion recognition within interest income and the impact of fair value amortization on the interest expense of acquired deposits, and the higher level of investments, including interest bearing federal funds acquired in the Hopkins Merger. Nonperforming assets represented 1.8% of total assets at September 30, 2017, compared to 2.3% at June 30, 2017, 2.6% at December 31, 2016 and 2.6% at September 30, 2016.

Nonperforming assets decreased to $11.4 million at September 30, 2017 from $14.6 million at June 30, 2017 and compared favorably to the $15.8 million recorded at December 31, 2016 and the $15.7 million recorded at September 30, 2016. The decrease over the second quarter of 2017 resulted primarily from continued resolution of acquired nonperforming loans. The changes since September 30, 2016 were driven by loans acquired in the Hopkins Merger offset by decreases in purchased credit impaired loans.

The provision for loan losses for the three- and nine-month periods ended September 30, 2017 was $0.3 million and $1.3 million, respectively, compared to $0.4 million and $1.0 million, respectively, for the same periods of 2016. The increase for the nine-month period ended September 30, 2017 was primarily the result of increases in loan originations. As a result, the allowance for loan losses was $4.0 million at September 30, 2017, representing 0.77% of total loans, compared to $3.6 million, or 0.71% of total loans, at June 30, 2017, $2.8 million, or 0.58% of total loans, at December 31, 2016, and $2.4 million, or 0.51% of total loans, at September 30, 2016. Management expects both the allowance for loan losses and the related provision for loan losses to increase in the future periods due to the gradual accretion of the discount on the acquired loan portfolios and an increase in new loan originations.

As part of the Hopkins Merger on July 8, 2016, the Bank acquired a 51% interest in iReverse. The Bank's interest in iReverse qualifies as held for sale upon acquisition and is therefore required to be presented as a discontinued operations. Discontinued operations include noninterest income and noninterest expense related to iReverse. On December 15, 2016, the Bank entered into an Ownership Interest Sale Agreement and Assignment with the other owner of iReverse pursuant to which the Bank agreed to sell its 51% interest effective March 31, 2017 for $70,000 which was paid in cash on February 28, 2017. The net income from discontinued operations, net of taxes, for the three- months and nine- months ended September 30, 2016 was $228,221, with $138,212 attributable to non-controlling interest and $90,009 attributable to common stockholders.

Balance Sheet Review

Total assets were $652 million at September 30, 2017, representing increases of $6 million, or 1%, $31 million, or 5%, and $45 million, or 7%, when compared to June 30, 2017, December 31, 2016 and September 30, 2016, respectively. Investment securities were $61 million at September 30, 2017, representing decreases of $5 million, or 8%, from June 30, 2017 and $2 million, or 4% from December 31, 2016, and an increase of $7 million, or 12%, when compared to September 30, 2016. Loans held for sale were $0.4 million at September 30, 2017, which decreased $2.5 million, $1.2 million and $2.4 million since June 30, 2017, December 31, 2016 and September 30, 2016, respectively.

Total deposits were $549 million at September 30, 2017, an increase of $13 million, or 3%, when compared to the $536 million recorded at June 30, 2017. Activity included normal cyclical deposit fluctuations and a $9 million increase in non-interest bearing deposits. Short-term borrowings from the Federal Home Loan Bank decreased to $25 million compared to $35 million at June 30, 2017.

Stockholders' equity increased to $72 million at September 30, 2017, from $69 million at June 30, 2017, $66 million at December 31, 2016, and $65 million at September 30, 2016. These increases related primarily to corporate earnings, with the increase over the third quarter of 2016 being offset by the $2.9 million decline related to the purchase of 568,436 shares of Bay's common stock. The combined activity improved the book value of Bay's common stock to $6.73 per share at September 30, 2017, compared to $6.51 per share at June 30, 2017, $6.29 per share at December 31, 2016 and $6.28 per share at September 30, 2016.

During the second and third quarters of 2016, Bay purchased a total of 743,436 shares of its common stock at an average price of $5.10 per share. Bay Bancorp has not elected to repurchase additional shares since that time. The Board may modify, suspend or discontinue the program at any time.

At September 30, 2017, the Bank remained above all "well-capitalized" regulatory requirement levels. The Bank's tier 1 risk-based capital ratio was approximately 12.27% at September 30, 2017 as compared to 12.15% at June 30, 2017, 12.32% at December 31, 2016 and 12.31% at September 30, 2016. Liquidity remained strong due to managed cash and cash equivalents, borrowing lines with the FHLB of Atlanta, the Federal Reserve and correspondent banks, and the size and composition of the investment portfolio.

Review of Financial Results

For the three-month periods ended September 30, 2017 and 2016

Net income for the three-month period ended September 30, 2017 was $2.2 million, compared to net income of $1.2 million and $0.5 million for the three-month periods ended June 30, 2017 and September 30, 2016, respectively.

Net interest income for the three-month period ended September 30, 2017 totaled $6.6 million compared to $6.3 million for the previous quarter and $5.7 million for the same period of 2016. The increase in interest income resulted from interest-earning asset growth from expansion of the Bay originated loan portfolio, selective investment purchases and the effects of the Hopkins Merger. As of September 30, 2017, the remaining net loan discounts on the Bank's loan portfolio totaled $7.2 million.

Noninterest income for the three-month period ended September 30, 2017 was $2.7 million, which included a $1.4 million insurance income gain. These results were lower when compared to the $2.4 million recorded for the three-month period ended September 30, 2016, which included a $1.0 million bargain purchase gain related to the Hopkins Merger. Adjusted for these merger related changes, Bay recorded a small decrease in noninterest income for the third quarter of 2017 when compared to the same period of 2016.

Noninterest expense reduction continues to be our focus for 2017 net income improvement. For the three-month period ended September 30, 2017, noninterest expense was $5.3 million, compared to $7.2 million for the same period in 2016, or $5.8 million when adjusting for $1.4 million in merger expenses related to the Hopkins Merger in 2016. After adjusting for the merger related expenses, the primary contributors to the change when compared to the third quarter of 2016 was a $0.5 million decrease in occupancy, legal, accounting and professional expenses. Loan collection costs were negative for the third quarter of 2017 as a result of larger than expected reimbursements of loan collection costs expensed during prior periods.

For the nine-month periods ended September 30, 2017 and 2016

Net income for the nine-month period ended September 30, 2017 was $4.4 million, compared to net income of $1.1 million for the nine-month period ended September 30, 2016.

Net interest income for the nine-month period ended September 30, 2017 totaled $18.8 million, compared to $15.3 million for the same period of 2016. The increase in interest income resulted from interest-earning asset growth from expansion of the Bay originated loan portfolio, selective investment purchases and the effects of the Hopkins Merger.

Noninterest income for the nine-month period ended September 30, 2017 was $5.3 million, which included a $1.4 million insurance income gain. These results were $4.9 million recorded for the nine-month period ended September 30, 2016, which included a $1.0 million bargain purchase gain related to the Hopkins Merger. After adjusting for these merger related changes, Bay recorded a similar results in noninterest income for the first nine months of 2017 when compared to the same period of 2016.

For the nine-month period ended September 30, 2017, noninterest expense was $15.7 million, compared to $19.0 million for the same period in 2016, or $16.1 million when adjusting for $1.6 million in merger expenses and $1.3 million in reverse mortgage subsidiary expenses related to the Hopkins Merger in 2016. Adjusted for the merger related expenses, the primary contributor to the change when compared to the first nine months of 2016 was a decrease in occupancy, foreclosed property, legal, accounting and professional expenses.

Bay Bancorp, Inc. Information

Bay is a financial holding company and a savings and loan holding company headquartered in Columbia, Maryland. Through the Bank, Bay serves the community with a network of 11 branches strategically located throughout the Baltimore Metropolitan Statistical Area, particularly Baltimore City and the Maryland counties of Baltimore Washington corridor. The Bank serves small and medium size businesses, professionals and other valued customers by offering a broad suite of financial products and services, including on-line and mobile banking, commercial banking, cash management, mortgage lending and retail banking. The Bank funds a variety of loan types including commercial and residential real estate loans, commercial term loans and lines of credit, consumer loans and letters of credit. Additional information is available at www.baybankmd.com.

Forward-Looking Statements

The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management's current expectations and beliefs concerning future developments and their potential effects on Bay. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of Bay. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. These statements are evidenced by terms such as "anticipate," "estimate," "should," "expect," "believe," "intend," and similar expressions. Although these statements reflect management's good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports filed by Bay with the Securities and Exchange Commission entitled "Risk Factors".